Causes of the Lithuanian financial crisis and emigration

Reasons and circumstances of economic crisis in different countries in different periods are different. The diversity of the economic and financial environment, economic characteristics and economic policy objectives determines the different measures need to overcome the crisis. In my essay, I will present some main causes of Lithuania economic crisis and one of economic crisis consequences – emigration.

The main reasons of economic crisis in Lithuania were the negative tendencies in the real estate market, irresponsible economic policy of the Government and adverse situation in the international markets. 2004-2007 were years of fast economic growth in Lithuania, as well as in other Baltic countries. Decreasing unemployment, increasing income, hard currency and financial support of the EU were the main factors of growth which were unprecedented in postwar Europe. 

Guided by hopes, both enterprises and households began borrowing for business ever more and, all the more, the banks granted loans with engaging interest. The largest share of loans received by a household were aimed at the real estate market. According to the data of the Bank of Lithuania, the volume of loans to acquire lodgings has grown from ltl 50 million in 2004 up to ltl 720 million in 2007. Such an expansion of credit had decisive influence to form a ‘bubble’ in the lithuanian real estate market. 

However, the above mentioned import increase was not equivalent to an adequate export increase and the balance of foreign trade was in deficit up to 2009. In such a situation, economic growth was feasible only by borrowing in the international financial market. Constant foreign trade deficit also determined the growth of the current account deficit. In line with the data of the Bank of lithuania, the curent account deficit in lithuania has grown by almost 300%, from 2004 to 2007, and exceeded ltl 14 billion. 

Despite rather high growth rates of GDP of the country, year after year budget expenditure exceeded receipts income. Though, the budget deficit before the crisis was not so high. Under the conditions of fast economic growth, it increases overheat  the economy. On the other hand, the constant budget deficit increased the country’s debt, which is unacceptable under the conditions of the economic growth.

Also, we can found other opinion and rational of recession because, since Lithuania joined the EU in 2004, there were important changes in the immigration situation, due to increasing number of immigrants from third country nationals. The analysis of the structure of immigration reveals that Russians, Ukrainians, and Belarusians compose the majority of foreigners arriving in Lithuania. The rising flow of immigration in Lithuania during the last years is mainly caused by the growing extent of repatriating Lithuanians. It is determined by the on-going global economic and social processes, such as recession, rising unemployment, and the attitude towards immigrants in the former residences of repatriated Lithuanians. 

Lithuanian financial crisies caused one the most biggest problem – emigration from country. After Lithuania joined European Union, emigration became a big problem in the country. Mostly, common emigrants are young people (20 – 29). Data, taken from Lithuania’s statistics department, shows that 40, 5% of all emigrants in 2010 were young people. Total amount is 33 600. This number turns danger for a country with a population of approximately 3 million habitants. What is even worse – 60% of young people wish to emigrate.

This problem intensifies during financial crisis: lack of jobs and low salaries are the main reasons. Because of this, people don’t feel the motivation to work in Lithuania and decide to emigrate in order to get financial independence. 

While liberalisation processes of the international labour market are in progress, Lithuania encounters not only emigration but also a very relevant “brain drain” problem. It is about specialists of various fields unable to find work environment where they could self-actualise. Therefore, they leave the country. The Lithuanian intellectual capital diminishes, accordingly. 

After creating a well-planned national strategy, educated Lithuanian scientists in the West could and should become one of the driving forces of restoring and developing the Lithuanian science. The reason of brain drain is not only the general economic lag of Lithuania. Brain drain is also encouraged by the flaws of the Lithuanian science and education systems, that is, their severe and long-lasting problems. Analyses conducted by the World Bank show that Lithuania is among the countries with the least science production and innovations, even compared to Central and Eastern European countries. One of the most important factors leading to brain drain is the position of the Lithuanian Government towards education. Investments in education are ineffective. Young people don't want to pay for education in Lithuanian universities. Because after graduation most part of young people can not find job in their specific, they don't want to work for a minimum wage and pay just monthly bills. So, they choose better move to foreign and gain education there.

Government try to solve this huge migration problem and attract young to stay in their home country, but with the intention to reduce the extent of emigration, long-term state policy should be directed towards the improvement of the quality of human resources, creating a beneficial business environment, and ensuring stable macroeconomics. The complex emigration reduction strategy needs to include the following measures: revival of agriculture and production, which will help creating more jobs and increase income for the national budget; promotion of economic development and increase of occupation, reduction of taxes, elimination of corruption, formation of clear professional career models; reformation of higher education, healthcare and demographical policy.

Agne Sipaviciute 

[artigo de opinião produzido no âmbito da unidade curricular “Economia Portuguesa e Europeia” do 3º ano do curso de Economia (1º ciclo) da EEG/UMinho]